AdvancedMultiple choice
You bought an option and delta-hedged it daily. Realised volatility over its life exceeded the implied volatility you paid, yet you lost money. How can that happen?
- AIt cannot happen; realised above implied always makes a hedged long option profitable
- BThe big moves came while gamma was small
- CDaily hedging is too frequent and always destroys the gamma P&L of a long option
- DImplied volatility is quoted annualised and realised is not, so they cannot be compared
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